Despite Production Shutdown, Tesla’s Future Is Still Bright

Tesla announced that its Fremont and Buffalo factories are closing production indefinitely. This, of course, is the prudent move, prioritizing employee safety. Given the company’s current $8B plus in cash on hand and the fact that variable production costs will scale down, the company is well-positioned to withstand a production shut down. Other takeaways:

We don’t know how long this will last and, therefore, we do not have an updated delivery target for 2020.

Where was demand for Model 3 going into today’s shutdown? Prior to last month, Tesla’s pricing led us to believe that demand was healthy. Specifically, the company has a strategy of producing as many cars as possible and pricing them according to demand. The fact that pricing has not changed in the last three months is a loose indication that demand was on-track entering this period of uncertainty. As a point of reference, Tesla’s last pricing change was a $500 model 3 increase in the Dec-19 quarter.

Delivery times also support the view that demand was healthy mid-way through the quarter but has, understandably, tapered off in recent weeks. US Model 3 lead times were 3-4 weeks in the first half of the quarter and have more recently declined to 1-2 weeks.

Putting it together, all bets are off regarding Tesla’s 2020 production and delivery numbers. That said, the company is properly capitalized to resume its trajectory of growing at 25%-30%, ahead of the broader auto industry.

Here is a link to our previous work on this topic published yesterday.